Supply Chain (1)

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School of Business TEMASEK POLYTECHNIC SCHOOL OF BUSINESS DBP(LM) MC3 Intake LM02 & DENG(DM) MC1 Intake DM01 AY 2020/2021 April Semester SUPPLY CHAIN MANAGEMENT & TECHNOLOGY (BCLO011) Individual Project (30%) PROJECT REPORT Submitted to Mr. Johnny Tan or Mr. Peter Loh By 0

School of Business Table of Contents 1. Introduction 2 Product Choice 2 Target customers and the existing competitors in the market. 2 Use of the discussed Technology in another industry 3 Reasons for working on this technology 3 Use and investment for the proposed supply chain solution idea 4 2. Supply Chain Echelon Map 4 Echelon map 4 Location of your manufacturing plant 5 Manufacturing strategies applied in the plant 6 Distribution channels 6 Current logistics or supply chain problems 7 3. Technology Application 8 Current technology 9 Limitations 9 Improvement idea 9 Potential benefits for improvement 10 Implementation 11 Resources needed for the implementation 12 4. Conclusion 13 5. References 14 1

School of Business 1. Introduction Product Choice This report has focused on IKEA furniture. The company culture has been implanted in its dictated core values through the vision, mission, structure, strategies, and approach towards employees, communities, and clients. Ingvar Kamprad’s narratives have driven the company’s culture. IKEA’s furniture has been chosen in this report as because the founder of the company being the member of a poor family has adopted some excellent pioneering cost-cutting techniques, adopted innovation, took up simple designs and curtailed the operational costs which made him develop such a big empire (Martin, 2018) which is now spread over 38 territories/ countries with a total of 313 stores (Ikea.com, 2020). Target customers and the existing competitors in the market. IKEA targets the millennials by adopting the marketing strategy by combining standard reality TV and sitcom themes for the creation of captivating and innovative Youtube videos. The behavioral traits and interest range of the millennials are wider and advertising for these groups is not formulaic. The turning of this group to social media and streaming services for satisfying their news and entertainment requirements made IKEA to conduct a successful campaign to target the audiences (Fiorella, 2014). There are numerous global competitors of IKEA, namely, Ashley Furniture Industries, Bed Bath & Beyond, and Walmart, etc (craft, 2020). There are various affordable furniture stores in Singapore which are comparable to IKEA, those comprise Hock Siong & Co., Forty-Two, Comfort Furniture, Second Charm, etc (Honeycombers Editorial, 2018). Use of the discussed Technology in another industry AI (Artificial Intelligence) applications in the healthcare sector have done a lot of development and this sector tops the list when it comes to AI use. In Singapore, the healthcare professional uses AI for clinical diagnosis more compared to the other counterparts. Singapore had the third- highest percentage of professionals who asserted AI use for improving accuracy during diagnosis. AI is also used for executing administrative tasks like scheduling appointments of 2

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School of Business patients and staffing (KUROHI, 2019). Some other areas of AI use in healthcare include: digital tools for health consultation for the people who are not able to visit a doctor during their scheduled time made situations less critical, robotics surgery (AI-enabled) maintains higher accuracy in the postoperative results, and hassle-free maintenance of data which freed the healthcare authorities from maintaining huge stacks of records (Datafloq.com, 2020). Reasons for working on this technology Artificial Intelligence addition in the supply chain has led to the delivery of tangible benefits to the company. The introduction of AI into the supply chain has led to an increase in the revenues by 53% as reported. The areas which generated revenues in the management of the supply chain included forecasting, sales, and demand, logistics network optimization, and spend analytics. The increased complexity in the supply chain infrastructure due to AI made it strenuous to achieve the required agility and speed within the market, and globalization has made it common for huge firms like IKEA for operating in hundreds of production, sourcing, and distribution systems with other global partners. AI introduction can cause the development of pop-up warehouses, speed-oriented, and ship-from-store models like innovations. AI could effectively manage the growing portfolios of products which comprises thousands of SKUs and with the strive to meet the requirement of customers the SKU number increases (McKendrick, 2020). Use and investment for the proposed supply chain solution idea The partner investors of IKEA and the involved supply chain members like the raw material suppliers may get interested in this idea and make investments for its implementations. AI use led to the reduction of excess capital loss by cutting down some manual laborers from their position and instead of them, AI-enabled robots are to be installed. The AI-enabled robot saves time, does work with accuracy, and reduces the chances of risk and also operates beyond human limits for 24/7. This would generate great revenues and would also save time. Thus, if the products are manufactured correctly at the proper time then it would also develop customer loyalty through the delivery of less damaged products at the correct time. The functional reason for investors' investment is that they get dividends from the company’s earned revenues (Masters, 2017). Thus, the investors would make the investments if they could see the profits 3

School of Business underlying the implementation of AI. 2. Supply Chain Echelon Map Echelon map The 3 main raw materials suppliers are: NINGBO BE FURNISHING, SANIKEY SERAMIK SAGLIK, and VINH LONG JOINT STOCK TRADE MANUFACTURE IMPORT & EXPORT (Listthe.com, 2020). 4 Suppliers (NINGBO BE FURNISHING, SANIKEY SERAMIK SAGLIK, and VINH LONG JOINT STOCK TRADE MANUFACTURE IMPORT & EXPORT) Manufacturers (Centralised DC) Wholesalers (Regional DC) Wholesalers (Regional DC) Retailer (Store) Retailer (Store) End-Customers End- Customers

School of Business Location of your manufacturing plant Most of the products of IKEA are designed in Sweden. Much of the manufacturing processes occur in China and other developing nations like Myanmar, Malaysia, and Vietnam and also among East European nations like Poland and Romania (NELSON, 2018). In Singapore, two Swedish ready-to-assemble IKEA stores are available namely: IKEA Tampines and IKEA Alexandra (SHOPSinSG, 2020). Manufacturing strategies applied in the plant IKEA started with its clear vision of providing functional and well-designed home furnishings at a comparably affordable price. The manufacturing strategies that IKEA applied in its plant are as follows: ● IKEA utilized sustainable recycled items for making furniture without trade-off on the durability or standard. With the use of fewer materials, the company cuts down the cost of transportation. ● The company encourages competition between the suppliers to assure the attainment of the best materials and prices. The company signs long-term contracts with suppliers to manufacture low price products. ● The company follows a Do-it-yourself assembly process and the pieces are packed efficiently and conveniently in flat packages for lowering the transportation cost as it would house more products in a single truck. ● Cost-per-touch is an inventory tactic. The more the number of hands engaged for retrieving the product, the more cost will be added to the bill. IKEA with its guiding principle saves costs by minimizing the touches as it doesn't have to make payments for the customers for retrieving furniture. ● IKEA streamlines the supply chain. The stocks at night are let down to lower slots. IKEA works for minimizing the items of bulk storage areas as it desires self-service for its customers as much as possible (Tradegecko.com, 2020). Distribution channels With global competitiveness and demand, the warehouse role has changed from product 5

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School of Business buffering to decreasing cost for processing, developing efficiency, and many more. Currently, the warehouse is using WMS (Warehouse Management Systems) for raising the required prerequisite for reaching better efficiency and performance. The use of a traditional distribution system led the delivery performance low and extended the average lead time. DDD (Daily Direct Distribution) system introduced for the occurring phenomenon. Local warehouses deliver all the products and the shipments are mostly done by truck to cut down transportation cost. If there existed numerous warehouses then it would become suitable for the customers but would make transportation complicated by increasing lead time. Logistic buyer value provided the product information to the customers faster and also increased the flexibility and delivery performance. It reduced lead time for both product and market. Logistic cost leadership minimized the administration cost of the warehouse. Products are gathered from different manufacturing units across the world and those products are unified for dispatch into various places. Centralized control over the flow of material reduced the inventory costs that further reduced the time for the introduction of new products to the market. The distribution channel includes dealers, manufacturers, wholesalers, retailers, and consumers (Liu and Hou, 2011). The manufacturers are the producers of products and supply goods to the end customers and for this, a well-knitted network is required. Wholesalers buy the products from manufacturers and sell them to the retailers or directly to the end-customers. Wholesalers work like importers of products and arrange shipment for those goods. Retailers are the market’s gatekeeper which sells the products ultimately to the end-customers. Sometimes agents also work on commission among the retailers and suppliers, and do not take product ownership. Current logistics or supply chain problems The supplier selection could be the main problem that IKEA faces as goods supply is not effective and all things are done due to the lack of coordination and collaboration. If the coordination and collaboration are good between partners then the company’s functions can be easily dealt with and productivity gets improved (Abouhenidi, 2014). There are numerous problems that the current logistic or supplier chain faces: ● Errors in warehouse management: sometimes errors in stock cause damage to the company reputation. Lack of proper stock keeping software in this technological era 6

School of Business could cause errors in warehouse management as manual operations are not errorless. Innovation is needed for gearing up the inventory management to recognize items, optimize stock space, and analyze the products according to the customer priorities. ● Lack of proper communication with end-customers: Customers are the company’s driving force and the set customer requirements provided developmental objectives to make use of innovation. The fast delivery of products is the other important point that is required to get improved as customers desire to obtain their orders faster, which needs more storage of local warehouses or stores and complexity in delivery from the logistic business. ● Lacking effective coordination: fragmentation and inconsistency causes the biggest logistic issues. The supply comprises numerous parties like storekeepers, manufacturers, drivers, suppliers, managers, and customers or end-users, and it is not possible to have a central control on each and every step of the supply chain. The empty mileage issue is basic from the truck drivers viewpoint. ● Negligence of internal communication: internal communication among the supply chain members and the company, and the employed workers and the company is essential for resolving issues as if the underlying problems are not solved then it could either disrupt the supply chain or may cause the employee to leave the company (Osypenko, 2020). Currently, the COVID situation has turned the global supply chain into a complex one, and replenishment of just-in-time inventory may make the situation worse. The supply cannot get repopulated with goods within an overnight when the COVID outbreak is at hold within, then ramping up of the production in the manufacturing units may take some time (Sanders, 2020), and the supply chain process during this period of economic recession gets slower. 3. Technology Application Current technology IKEA pursues the latest trends of technology and currently, it uses Augmented Reality (AR) and Virtual Reality (VR) technologies. AR superimposes a computer-generated image over the view of the user in the real world which provides a complex view. This technology has helped 7

School of Business customers by seeing not only catalogs but also visualizing how it would look like. VR is used for the creation of game content and entertainment. This technology also provides virtual experiences. IKEA used this technology for gaining loyalty from the customers (Erkilic, 2020). Limitations Still, these technologies can be used for increasing customer density. Augmented Reality technology is quite expensive and small franchise stores may find it less accessible and difficult to use daily. Concerning the user experience, the social use of Augmented Reality may be unsuitable at some conditions. Virtual reality has become common but still, the programmers face problems in interaction with the virtual environments. The use of Virtual Reality created a sense of escapism and many of the people live in such an environment instead of facing the problems of real-life(Panono.com, 2020). Improvement idea AI is continuously evolving and powerful. The application of advanced technologies like AI in the nascent developmental stages can drive innovative business strategies. The application of this technology in the supply chain could be a game-changer. The proper implementation of AI may assist IKEA in making more agile and smarter decisions and also estimates the underlying supply chain issues. The proactive AI-enabled systems will raise the service quality that may further exceed the customer expectation of undamaged and on-time deliveries. The automated compliance processing can improve the efficiency as well. This may consecutively result in lowering of cost and less problems across the supply chain network. AI could impact the four key areas: ● Predictive capabilities forecast the demands. The lagging of demand causes damage (loss) to the suppliers involved in the supply chain. AI ramps up the efficiency in predictive demand and network planning, which makes merchandise proactive and the forecasting capability lowers operational costs. ● Chatbots redefined customer support. The use of chatbots personalizes relations among the company and the customers. Bots can handle customer engagement easily. ● Smart warehouses being more efficient. Automation in warehouse operations makes 8

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School of Business tedious tasks simple and operations turn to be more cost-effective. ● Genetic algorithms improve times for delivery and reduce costs. Time is the most important part of the supply chain as the product delivery depends upon it. A route planner can be used by the company on the basis of the genetic algorithms for mapping out the optimal delivery route (Khasis, 2019). This idea could be a great revenue generator and would easily resolve the supply chain issues. Potential benefits for improvement The four potential benefits of AI in meeting the challenges of the supply chain: End-to-end visibility: The cognitive automation platform in today's complex supply chain network, has addressed challenges with the crawling of constant data across the applications that led to the creation of a single, virtualized data layer. This layer disclosed the effect and the cause, bottlenecks, and scopes for improvement. The operation with real-time data, rather than information may be days, weeks, or even months old. Actionable analytic insights: Even after making investments of millions of dollars in the data lake and in business intelligence solutions, the company does not possess the required insights for making decisions in a timely manner that meet-up the expectations for agility and greater speed. Cognitive automation shifts large amounts of data that find out the patterns for quantifying the tradeoffs at a scale that is far beyond the possible conventional systems. Reduced manual work: The supply chain professionals spent countless hours gathering data with the use of BI tools or spreadsheets for devising plans from the disparate systems. There's simply too much data, too many applications, and too many variables to account for. This task is of high risk. The cognitive automation takes over traditional heavy lifting which is done mostly by the humans. The delivery of the deep analysis down to the SKU level is not much practical as with the approach led manually. Informed decision-making: The cognitive automation augments and automates the decisions along with the AI-driven recommendations and predictions on optimal actions that improve the performance of the supply chain. The implications are spelled out across the various scenarios concerning the revenue, cost, and time. The autonomous acts of the cognitive automation platform is authorized. With conditional changes, the overtime learning led to the continuous 9

School of Business improvement of the recommendations (McKendrick, 2020). The 24/7 availability of the AI-enabled robots enhanced production levels and its day to day application led to the reduction of errors. The reduced manual work led to less engagement of laborers which led to some financial savings. The use of more complex machines led the supply chain operations to proceed beyond the limits of humans. It also reduced the chances of risk at the workplace (EDUCBA, 2020). Implementation AI is showing its potential across numerous industries inclusive of manufacturing and retails units. To implement AI within the supply chain and to assure the success of the implementation the following steps can be taken: - Get proper education about AI and make it familiar. - Recognize the issue first for which AI is to be implemented. - Prioritizing the concrete value. - Acknowledging the gap within internal capabilities. - Bringing of experts for setting-up pilot projects. - Forming taskforce for data integration. - Start simple and small by using AI incrementally for proving value and collecting feedback and expand accordingly. - Within the AI plan include the storage requirements. - Include AI in daily tasks. - Build with a system balance ( Marvin, 2018). Resources needed for the implementation From the perspective of AI infrastructure, one thing is crystal clear that the adoption of AI will require significant infrastructure costs and computing resources. As technology becomes more resource-demanding and complex the overheads get snowball. The finding of cost-effectiveness and the increased influence of AI could make intensive processes operate which will be both a competitive benefit and requirement. The cloud technology, specifically the hybrid cloud solutions could be the AI foundation as it requires data ratchet up in considerable amounts. The 10

School of Business hybrid solution assures the workload and business requirements which matches the technological demands that are required for sustaining AI, it would also ensure the right level of cost as well. Five things that ensure the choosing of the possible platform: ● Storage capacity: the basics of the infrastructure possess the ability for scaling storage with the growth of data volume. Figuring out of the storage type depends on certain factors that include the AI level which the company plans to make use of and whether there is any requirement for making real-time decisions. ● High-computing capacity: adequate performance for computing resources like GPUs and CPUs have been required for taking benefits of the scopes that AI presented. CPU based situations handle the fundamental AI workloads and deep learning includes the deployment of scalable algorithms and multiple larger data sets. Computing on the basis of CPU may not be adequate. ● Cost-effective solution: the complexity of AI models become expensive, so getting off extra performance and gathering of cost is critical. The expected growth with AI use has placed heavy burdens on servers, storage, network infrastructures that enabled the technological use. ● Security: AI includes the tackling of sensitive information like stock record, financial data, employee and supplier details, etc. The breaching of such data could be a threat to all the members of the supply chain. Bad data infusion causes incorrect AI-system related inferences that may lead to defective decisions. State-of-the-art-technology must be used for end-to-end security of the AI infrastructure. ● Networking infrastructure: Algorithm learning is mostly based on the interactions and with expanding AI efforts the network requires to march along with the requirements. High priority of scalability requires low-latency and high bandwidth (Hofstee, 2019). 4. Conclusion This report has chosen IKEA’s furniture as the product. The company culture led to such selection. Millennials are the target customers and there are numerous competitors in the market. This report has detailed the supply chain challenges and the current use of technology like VR and AR. This also stated the limitation of the current technology and stated about a better and 11

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School of Business improved idea of technological adoption, i.e., AI. The application of such technology led to the reduction of manual work, end-end visibility, and actionable analytic insights. Steps for implementation of such technology is also stated in this report. Resources like high-computing capacity, storage capacity, security, cost-effective solution, and networking infrastructure are needed for the implementation of the AI technological infrastructure. There are numerous supply chain issues like errors in warehouse management, lack of effective communication, etc. IKEA used fewer materials for cutting transportation costs and also made the use of recycled items for production. 5. References 1. Ikea.com. 2020. IKEA Group Stores - IKEA . [online] Available at: <https://www.ikea.com/ms/en_JP/about_ikea/facts_and_figures/ikea_group_stores/> [Accessed 14 August 2020]. 2. Martin, E., 2018. 4 Unusual Ways Self-Made Billionaire IKEA Founder Ingvar Kamprad Insisted On Saving Money . [online] CNBC. Available at: <https://www.cnbc.com/2018/01/29/money-habits-of-self-made-billionaire-ikea-founder- ingvar-kamprad.html> [Accessed 14 August 2020]. 3. Fiorella, S., 2014. Ikea Targets Millennials, Combines Sitcom And Reality TV Themes . [online] Sensei Marketing. Available at: <https://senseimarketing.com/10197-2/> [Accessed 14 August 2020]. 4. craft. 2020. [online] Available at: <https://craft.co/ikea/competitors> [Accessed 14 August 2020]. 5. Honeycombers Editorial, H., 2018. Singapore’S Affordable Furniture And Decor Stores | Honeycombers . [online] Honeycombers Singapore. Available at: <https://thehoneycombers.com/singapore/cheap-furniture-in-singapore-where-to-buy- affordable-sofas-mattresses-dining-chairs-and-more/> [Accessed 14 August 2020]. 6. KUROHI, R., 2019. Singapore Ranked No. 3 In Survey On Use Of AI In Healthcare . [online] The Straits Times. Available at: <https://www.straitstimes.com/singapore/health/singapore-ranked-no-3-in-survey-on-use- 12

School of Business of-ai-in-healthcare> [Accessed 14 August 2020]. 7. Datafloq.com. 2020. 5 Industries That Are Using Artificial Intelligence The Most . [online] Available at: <https://datafloq.com/read/5-industries-using-artificial- intelligence/7242> [Accessed 14 August 2020]. 8. McKendrick, J., 2020. Artificial Intelligence Works Its Way Into Supply Chains | Zdnet . [online] ZDNet. Available at: <https://www.zdnet.com/article/artificial-intelligence- works-its-way-into-supply-chains/> [Accessed 14 August 2020]. 9. Erkilic, G., 2020. IKEA's Digital Marketing Strategy: 8 Things To Know About The Company's Success . [online] Digital Agency Network. Available at: <https://digitalagencynetwork.com/ikea-digital-marketing-strategy/> [Accessed 14 August 2020]. 10. Panono.com. 2020. Augmented Reality (AR), Virtual Reality (VR) Different Areas Of Application, Advantages And Disadvantages . [online] Available at: <https://www.panono.com/en/blog/blog-posts/augmented-reality-ar-virtual-reality-vr- different-areas-of-application-advantages-and-disadvantages/index.html> [Accessed 14 August 2020]. 11. Khasis, D., 2019. Four Ways AI Is Impacting Logistics And Supply Chain Management . [online] Available at: <https://www.supplychainbrain.com/blogs/1-think-tank/post/30045- four-ways-ai-is-impacting-logistics-and-supply-chain-management> [Accessed 14 August 2020]. 12. Marvin, R., 2018. 10 Steps To Adopting Artificial Intelligence In Your Business . [online] PCMag India. Available at: <https://in.pcmag.com/tableau-desktop/111539/10-steps-to- adopting-artificial-intelligence-in-your-business> [Accessed 14 August 2020]. 13. Masters, T., 2017. Reason To Invest In Company . [online] Available at: <https://pocketsense.com/reasons-invest-company-5894.html> [Accessed 14 August 2020]. 14. EDUCBA. 2020. Advantages Of Artificial Intelligence | Top 7 Most Useful Advantages Of AI . [online] Available at: <https://www.educba.com/advantages-of-artificial- intelligence/> [Accessed 14 August 2020]. 15. Hofstee, E., 2019. What Are The Infrastructure Requirements For AI? - Leaseweb Blog . 13

School of Business [online] Leaseweb Blog. Available at: <https://blog.leaseweb.com/2019/07/04/infrastructure-requirements-ai/> [Accessed 14 August 2020]. 16. Abouhenidi, H., 2014. The Supply Chain Of The IKEA Company . [ebook] International Journal of Scientific & Engineering Research. Available at: <https://www.ijser.org/researchpaper/The-Supply-Chain-of-the-IKEA-Company.pdf> [Accessed 15 August 2020]. 17. Osypenko, A., 2020. [online] Madappgang.com. Available at: <https://madappgang.com/blog/logistics-problems-and-solutions-how-mobile-apps-serve- the-transportation-industry> [Accessed 15 August 2020]. 18. Sanders, N., 2020. Covid-19 Supply-Chain Disruption | Treasury & Risk . [online] Treasury & Risk. Available at: <https://www.treasuryandrisk.com/2020/03/19/covid-19- supply-chain-disruption/?slreturn=20200715015653> [Accessed 15 August 2020]. 19. Tradegecko.com. 2020. IKEA Supply Chain: How Does IKEA Manage Its Inventory? . [online] Available at: <https://www.tradegecko.com/blog/supply-chain- management/ikeas-inventory-management-strategy-ikea> [Accessed 15 August 2020]. 20. Liu, J. and Hou, Y.R., 2011. Time based strategy in distribution logistics: gaining competitive advantages in IKEA. 21. NELSON, B., 2018. [online] Available at: <https://www.hunker.com/13710050/where-is- ikea-furniture-manufactured> [Accessed 15 August 2020]. 22. SHOPSinSG. 2020. IKEA Singapore - Affordable Modern Furniture - Shopsinsg . [online] Available at: <https://shopsinsg.com/ikea-stores-in-singapore.html> [Accessed 15 August 2020]. 23. Listthe.com, L., 2020. IKEA Supplier List . [online] Listthe.com. Available at: <https://www.listthe.com/manufacturers-of/ikea> [Accessed 15 August 2020]. 14

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